SAINTS Annual Preliminary Results

RNS Number : 8567O

Scottish American Investment Co PLC

12 February 2016

 

RNS Announcement: Preliminary Results

 Results for the year to 31 December 2015

¾  Dividend - the full year dividend, including a recommended final dividend of 2.70p, is 10.70p per share. This is 1.9% ahead of 2014 and ahead of inflation (whether 0.2% as measured by CPI or 1.2% as measured by RPI), maintaining the Company's long record of growing the dividend in real terms over time.

¾  Total return - Net Asset Value Total Return (capital and income) for the year was 5.9%, ahead of the total return from equities of 4.1%. The share price total return was 9.2%. Positive returns were assisted by the strong operational performance of the Company's equity investments, including certain financial holdings, and by avoiding some troubled areas.

¾  Revenues - as anticipated at the interim stage, investment income and earnings per share were slightly below the levels of last year. Investment income was £18.6m (2014 - £18.8m) and earnings per share were 10.47p (2014 - 10.51p).

¾  Outlook - despite market uncertainties, the Board is confident that the Company is well placed to continue to meet its objectives over time.

¾  Sir Brian Ivory, Chairman, will step down from the Board at the conclusion of the AGM to be held on 4 April 2016.  He will be succeeded by Peter Moon.         

11 February 2016

SAINTS' objective is to deliver real dividend growth by increasing capital and growing income. Its policy is to invest mainly in equity markets, but other investments may be held from time to time including bonds, property and other asset classes.

The Company is managed by Baillie Gifford, the Edinburgh based fund management group with around £108 billion under management and advice as at 11 February 2016.

Past performance is not a guide to future performance. SAINTS is a listed UK company. As a result, the value of its shares and any income from those shares is not guaranteed and could go down as well as up. You may not get back the amount you invested. As SAINTS invests in overseas securities, changes in the rates of exchange may also cause the value of your investment (and any income it may pay) to go down or up. You can find up to date performance information about SAINTS on the SAINTS page of the Managers' website www.saints-it.com. Neither the contents of the Company's website nor the contents of any website accessible from hyperlinks on the Company's website (or any other website) is incorporated into, or forms part of, this announcement.

For further information please contact:

Dominic Neary, Manager, The Scottish American Investment Company P.L.C.

Tel: [phone]

James Budden, Baillie Gifford & Co  

Tel: [phone] or 07507 201208

Roland Cross, Director, Four Broadgate

Tel: [phone] or 07831 401309

The following is the unaudited Annual Financial Report for the year to 31 December 2015.

 

Chairman's Statement

The Company aims to deliver real dividend growth. An increased dividend of 10.70p (10.50p) will maintain the Company's long record of growing dividends in real terms over time.

Overview

2015 was a year of modest progress at best for most investment markets and asset classes.

Throughout the year, markets attempted to scale the proverbial wall of worry. Whilst economic news was encouraging in some areas, in the United States in particular, there were marked disappointments elsewhere. Markets were concerned at various points about both weaker than expected Chinese growth on the one hand, and the consequences of eventual normalisation of monetary policy in the Western world on the other. Geo-political risks - in particular, turbulence in the Middle East and Ukraine - and longer term concerns about debt levels, productivity growth and valuations were also ever present and concern about our risk of leaving the EU rose after the Election and is still rising.

The Company navigated these choppy waters in a steady fashion, helped by both our long term, low turnover approach and our focus on company potential rather than the concerns of the day. Equities remain at the core of SAINTS' investments and, collectively, the companies owned again performed well operationally. This in turn helped both their share prices and the progression of their dividends. The Company's investments in property also continued to perform well.     

Revenues

The Company reported at the interim stage that investment income and earnings per share had been slightly below the levels of the corresponding period in the previous year, and as anticipated then the same has been true for the year as a whole. In 2015 (and 2014), investment income and earnings per share were £18.6m (£18.8m) and 10.47p (10.51p) per share respectively. Income was held back in part by a decision to reshape the property portfolio to extend the overall duration of its leases, with an accompanying fall in yield, and partly by a reduction in income from special dividends. More encouragingly, and more importantly for long term income progression, the ordinary dividends earned within the equity portfolio grew at a healthy rate and the proportion of property rents which are linked to inflation increased. Both managers (Baillie Gifford and, for the Company's property investments, OLIM) continued at the Board's request to place increasing emphasis on supporting the dependability and the future progression of the Company's dividend in line with its objective.

Dividend and Inflation

A final dividend of 2.70p is recommended which will take the full year dividend to 10.70p per share, 1.9% higher than the 2014 dividend of 10.50p and also ahead of inflation as measured by both the Consumer Prices Index (CPI, 0.2%) and Retail Prices Index (RPI, 1.2%).

 As last year, we are showing dividend progression against both RPI and CPI. In future, we will show dividend progression against CPI which has been the UK Government's official measure of inflation for some time. On either measure though, the Company has increased its dividend well ahead of inflation over the last ten years.

The recommended dividend is largely, but not fully, covered by this year's earnings. The Company has built up revenue reserves in the past with a view to facilitating the smooth progression of dividends. The Board has taken into account both these reserves and the overall performance of and prospects for the Company's investments in recommending a dividend which reflects the Company's aim of delivering real dividend increases over the long term and reinforces its progressive dividend policy. SAINTS has increased its dividend for over 35 consecutive years.

Total Return Performance

The Company's net asset value (NAV) total return (capital and income) for the year was 5.9% and the share price total return was 9.2%: the total return from the global equity market was 4.1%.

As I emphasised last year, the Company's portfolio of investments differs markedly from the make up of the global equity index against which total return performance is often compared. These differences are necessary and appropriate in order for the Company to achieve its objectives, deliver a higher yield than global equities and service its borrowings. It is therefore not generally helpful to dwell on the comparison of performance against any benchmark, particularly over short term periods.

It is none-the-less pleasing that, in a year in which markets generally struggled to make progress, the Company was able to deliver a significant positive return. This return was driven chiefly by the strong performance of the Company's equity investments, and in particular that of certain financial holdings, as well as by avoiding some troubled areas. In my statement last year I mentioned the oil price as a factor that would be significant over the coming year, and the Company's limited equity exposure in this area has certainly been helpful. Returns were also helped by another good year for the Company's property investments, which benefitted from attractive yields and some further strengthening of capital values. The principal contributors to and detractors from performance are explained in more detail in the Manager's report.

Borrowings

SAINTS' borrowings take the form of a single £80m debenture which is due for repayment in April 2022.  During 2015, the borrowings mainly funded a range of higher yielding commercial property and bond investments.

The book value of the debenture is £84.7m which, at the year end, was equivalent to approximately 24% of shareholders' funds.  The estimated market or fair value of the debenture was £103.6m, a decrease from the previous year's value of £105.9m.  Whilst the market value of the Company's borrowings will continue to be influenced by prevailing interest rates, over the coming years we continue to expect declines in both the debenture's book and market values as it approaches its final redemption value of £80m.

Outlook

Many of the market concerns which I mentioned above remain germane, and they will continue to potentially affect both the operational environment for companies and market sentiment. Whilst it is probable that Western recovery will compensate for slowing growth elsewhere, it is not certain. Political risk close to home also remains a potential de-stabilising factor, both in relation to the forthcoming vote on Britain's future relationship with the EU, and the potential downside were we to vote to Leave.

Despite these uncertainties, the Company is well placed to continue to meet its objectives over time. Whilst capital values will fluctuate, the global nature of the Company's investments, including many of those listed in the UK, helps both the mitigation of risk and the search for reward. The Board remains confident that the income producing power of the Company's investments will progress over time. Coupled with the Company's strong revenue and capital reserves and the encouraging overall prospects for dividend growth generally, this leaves SAINTS well placed to continue to increase its own dividend ahead of inflation in the future.

Issuance

I am pleased to report that the Company has issued a modest amount of shares to satisfy market demand over the past year. The Board believes that it is helpful to grow the Company as this benefits existing shareholders, not least by spreading the Company's fixed costs over a greater number of shares. In addition, over time issuance may help to maintain and indeed improve the liquidity of your Company's shares. On the other hand, it is important that such issuance does not dilute the interests of existing shareholders in the assets of the Company.

It is the Directors' firm intention only to issue shares at a price which is at or above the net asset value (NAV) with the debenture valued at book value, which the Board believes to be the prudent measure when determining the price at which to issue shares.  This year an additional annual resolution is being proposed which (together with the customary annual share issuance resolutions) is intended to increase the prospects of share issuance by guarding the Company against an inadvertent technical regulatory breach associated with the issuance process. My fellow Directors and I would strongly encourage shareholders to support the resolution and reiterate that the Board's intention is only to issue shares on a basis which protects or increases shareholder value. The technicalities of this proposal are explained in more detail in the Directors' Report.

The Board

I have decided to step down from the Board of SAINTS at the conclusion of the forthcoming AGM. I have been proud to serve as your Chairman since 2001, which has been an eventful period for markets and for the Investment Trust industry. I would like to take this opportunity to thank you as shareholders, and also my colleagues on the Board and our associates at Baillie Gifford, for your much valued support.

I am very pleased to announce that Peter Moon has agreed to take over as Chairman. Peter joined the Board in 2005, and was chief investment officer of The Universities Superannuation Scheme Limited until 2009. His broad experience in the investment management industry, as well as his clear views on the Company and how it can best serve the interests of you our shareholders, make him ideally qualified for this role. My fellow directors and I look forward to a continuing period of success for the Company under his leadership.

AGM

At the AGM the Company is proposing to amend the Articles in order to increase the limit on Directors' fees. It is not the Directors' intention to increase the quantum of Directors' fees for 2016. However, fees are close to the current limits when you factor in the Audit Chair additional remuneration, and so an increase is being proposed in order to provide some headroom for future increases should they become necessary. Further information on this resolution can be found on page 23 in the Directors' Report.

The AGM will be held at 11am on Monday 4 April at Baillie Gifford's offices at Calton Square, 1 Greenside Row, Edinburgh. The Manager will make a presentation on the investment portfolio and there will also be an opportunity to ask questions. The Directors and Manager look forward to meeting you there.

Sir Brian Ivory, CBE

Chairman

11 February 2016

Income statement

The following is the unaudited preliminary statement for the year to 31 December 2015 which was approved by the Board on 11 February 2016. The Board of The Scottish American Investment Company P.L.C. is recommending to the Annual General Meeting of the Company to be held on 4 April 2016 the payment of a final dividend of 2.70p (2.65p last year) per ordinary share making a total of 10.70p (10.50p last year) paid and proposed for the year ended 31 December 2015.

	For the year ended 31 December 2015 (unaudited)			For the year ended 31 December 2014 (audited)
	Revenue £'000	Capital £'000	Total £'000	Revenue £'000	Capital £'000	Total £'000
Net gains on investments - securities	-	7,038	7,038	-	3,806	3,806
Net gains on investments - property	-	1,643	1,643	-	2,293	2,293
Currency losses/(gains)	-	(272)	(272)	-	17	17
Income (note 2)	18,626	-	18,626	18,782	-	18,782
Management fees	(690)	(1,282)	(1,972)	(680)	(1,262)	(1,942)
Other administrative expenses	(1,137)	-	(1,137)	(949)	-	(949)
Net return before finance costs and taxation	16,799	7,127	23,926	17,153	4,854	22,007
Finance costs of borrowings	(2,028)	(3,767)	(5,795)	(2,041)	(3,790)	(5,831)
Net return on ordinary activities before taxation	14,771	3,360	18,131	15,112	1,064	16,176
Tax on ordinary activities	(858)	226	(632)	(1,172)	286	(886)
Net return on ordinary activities after taxation	13,913	3,586	17,499	13,940	1,350	15,290
Net return per ordinary share (note 3)	10.47p	2.70p	13.17p	10.51p	1.02p	11.53p

 

Balance sheet

	At 31 December 2015 (unaudited)		At 31 December 2014 (audited)
	£'000	£'000	£'000	£'000
Fixed assets
Investments - securities	375,868		373,112
Investments - property	56,000		47,925
		431,868		421,037
Current assets
Debtors	1,115		1,063
Cash and deposits	3,399		9,977
	4,514		11,040
Creditors
Amounts falling due within one year	(3,173)		(2,910)
Net current assets		1,341		8,130
Total assets less current liabilities		433,209		429,167
Creditors
Amounts falling due after more than one year		(84,756)		(85,361)
Net assets		348,453		343,806
Capital and reserves
Called up share capital		33,290		33,169
Share premium		1,534		357
Capital redemption reserve		22,781		22,781
Capital reserve		274,038		270,452
Revenue reserve		16,810		17,047
Shareholders' funds		348,453		343,806
Net asset value per ordinary share (debenture at fair value)		247.5p		243.7p
Net asset value per ordinary share (debenture at book value)		261.7p		259.1p
Ordinary shares in issue (note 6)		133,160,943		132,675,943

Statement of Changes in Equity

For the year ended 31 December 2015 (unaudited)

	Share capital £'000	Share Premium £'000	Capital redemption reserve £'000	Capital reserve £'000	Revenue reserve £'000	Shareholders' funds £'000
Shareholders' funds at 1 January 2015	33,169	357	22,781	270,452	17,047	343,806
Shares issued	121	1,177	-	-	-	1,298
Net return on ordinary activities after taxation	-	-	-	3,586	13,913	17,499
Dividends paid in the year (note 4)	-	-	-	-	(14,150)	(14,150)
Shareholders' funds at 31 December 2015	33,290	1,534	22,781	274,038	16,810	348,453

For the year ended 31 December 2014 (audited)

	Share capital £'000	Share Premium £'000	Capital redemption reserve £'000	Capital reserve £'000	Revenue reserve £'000	Shareholders' funds £'000
Shareholders' funds at 1 January 2014	33,169	357	22,781	269,102	16,973	342,382
Net return on ordinary activities after taxation	-	-	-	1,350	13,940	15,290
Dividends paid in the year (note 4)	-	-	-	-	(13,866)	(13,866)
Shareholders' funds at 31 December 2014	33,169	357	22,781	270,452	17,047	343,806

 

Cash flow statement

	Year Ended 31 December 2015 (unaudited)		Year Ended 31 December 2014 (audited)
	£'000	£'000	£'000	£'000
Cash flows from operating activities
Net return on ordinary activities before taxation	18,131		16,176
Net gains on investments - securities	(7,038)		(3,806)
Net gains on investments - property	(1,643)		(2,293)
Currency losses/(gains)	272		(17)
Finance costs of borrowings	5,795		5,831
Overseas withholding tax	(651)		(857)
(Increase)/decrease in accrued income and prepaid expenses	(57)		107
Increase in other debtors	(85)		(70)
Increase in creditors and prepaid income	63		61
Other non-cash changes	(93)		(32)
Cash from operations		14,694		15,100
Interest paid		(6,400)		(6,400)
Net cash inflow from operating activities		8,294		8,700
Cash flows from investing activities
Acquisitions of investments	(106,814)		(108,090)
Disposals of investments	104,757		119,232
Forward currency contracts	188		14
Net cash (inflow)/outflow from investing activities		(1,869)		11,156
Equity dividends paid	(14,150)		(13,866)
Shares issued	1,298		-
Net cash outflow from financing activities		(12,852)		(13,866)
(Decrease)/increase in cash and cash equivalents		(6,427)		5,990
Exchange movements		(151)		31
Cash and cash equivalents at start of period		9,977		3,956
Cash and cash equivalents at end of period*		3,399		9,977

*      Cash and cash equivalents represent cash at bank and short term money market deposits repayable on demand.

 

Asset allocation

	At 31 December 2015 % (unaudited)		At 31 December 2014 % (audited)
Quoted equities	82.9		81.1
Bonds	3.9		5.8
Direct property	12.9		11.2
Net liquid assets	0.3		1.9
Total assets	100.0		100.0

Performance attribution

Portfolio Breakdown	Average allocation		Total return
	SAINTS %	Benchmark %	SAINTS %	Benchmark %
Global equities	101.0	100.0	7.0	4.1
Bonds	6.0		(16.0)
Direct property	15.4		10.8
Deposits	1.5		-
Debenture at book value	(23.9)		6.8
Portfolio total return (debenture at book value)			6.0	4.1
Other items*			(1.0)
Fund total return (debenture at book value)			5.0	4.1
Adjustment for change in fair value of debenture			0.9
Fund total return (debenture at fair value)			5.9	4.1

* Includes Baillie Gifford and OLIM management fees.

The above returns are calculated on a total return basis with net income reinvested.

Past performance is not a guide to future performance.

Source: Baillie Gifford

 

Thirty largest equity holdings (unaudited)

Name	Business	2015 Value £'000	2015 % of total assets	2014 Value £'000
WPP	Advertising agencies	9,914	2.3	3,812
Hiscox	Property and casualty insurance	9,645	2.2	7,423
Coca Cola	Beverage manufacturer	8,761	2.0	7,126
Deutsche Boerse	Securities exchange owner/operator	8,218	1.9	6,275
Taiwan Semiconductor Manufacturing	Semiconductor manufacturer	7,806	1.8	8,010
Kimberley-Clarke De Mexico	Paper-based household products	7,288	1.7	154
Analog Devices	Integrated circuits	6,945	1.6	6,588
Reynolds American	Cigarette manufacturer	6,817	1.6	4,390
Pepsico	Snack and beverage manufacturer	6,774	1.6	6,062
Japan Residential Investment Company	Japanese residential property fund	6,750	1.6	5,016
McDonalds	Fast food restaurants	6,742	1.6	5,055
Partners Group	Asset management	6,680	1.6	5,089
Capita	Business process outsourcing	6,652	1.5	5,041
Fastenal	Distribution and sales of industrial supplies	6,614	1.5	-
Admiral	Car insurance	6,591	1.5	-
Total	Integrated oil company	6,521	1.5	7,885
Linear Technology	Integrated circuits	6,491	1.5	4,913
Procter & Gamble	Household product manufacturer	6,483	1.5	-
Roche Holdings	Pharmaceuticals	6,376	1.5	6,781
Microsoft	Computer software	6,185	1.4	4,051
Johnson and Johnson	Pharmaceuticals and healthcare products	5,919	1.4	5,698
Provident Financial	Loans and credit cards	5,827	1.3	5,825
New York Community Bank	Banking	5,822	1.3	4,659
Rio Tinto	Mining	5,818	1.3	8,817
United Parcel Service	Courier services	5,755	1.3	5,357
Aviva	Investment and life assurance	5,712	1.3	5,363
Sonic Healthcare	Laboratory testing	5,693	1.3	3,661
Aberforth Geared Income Trust	UK small-cap equities fund	5,621	1.3	4,427
Want Want	Snacks and milk-based products	5,566	1.3	5,583
Anta Sports Products	Sportswear manufacturer and retailer	5,513	1.3	3,088
		201,499	46.5	146,149

 

Notes (unaudited)

1.	The financial statements for the year to 31 December 2015 have been prepared in accordance with Financial Reporting Standard 102, the Financial Reporting Standard applicable in the UK and Republic of Ireland ('FRS 102') which the Company has adopted for the financial year to 31 December 2015. FRS 102 has required a change in the treatment of property.  The fair value of investment property and gains and losses on disposal of investment property are recognised as capital items in the Income Statement. Previously these were recognised through the Statement of Total Recognised Gains and Losses. This change in treatment has no impact on net assets.
2.	Income				2015 £'000		2014 £'000
	Income from investments
	Franked investment income				3,666		3,295
	UK unfranked investment income				238		4
	Overseas dividends				10,017		10,627
	Overseas interest				660		1,089
					14,581		15,015
	Other income
	Deposit interest				17		17
	Rental income				4,004		3,713
	Other income				24		37
					4,045		3,767
	Total income				18,626		18,782
	Total income comprises
	Dividends from financial assets designated at fair value through profit or loss				13,683		13,922
	Interest from financial assets designated at fair value through profit or loss				898		1,093
	Interest from financial assets not at fair value through profit or loss				17		17
	Other income not from financial assets				4,028		3,750
					18,626		18,782
3.	Returns per ordinary share	2015			2014
		Revenue	Capital	Total	Revenue	Capital		Total
	Net return per ordinary share	10.47p	2.70p	13.17p	10.51p	1.02p		11.53p
	Net return per ordinary share is based on the net return on ordinary activities after taxation figures of £13,913,000 (2014 - £13,940,000) and on 132,864,655 (2014 - 132,675,943) ordinary shares of 25p, being the weighted average number of ordinary shares in issue during each year. Capital return per ordinary share is based on the net capital gain for the financial year of £3,586,000 (2014 - net capital gain of £1,350,000), and on 132,864,655 (2014 - 132,675,943) ordinary shares of 25p, being the weighted average number of ordinary shares in issue during the year. There are no dilutive or potentially dilutive shares in issue.

Notes (unaudited) (ctd)

4.	Ordinary Dividends	2015	2014		2015 £'000	2014 £'000
	Amounts recognised as distribution in the year:
	Previous year's final (paid 10 April 2015)	2.65p	2.60p		3,516	3,450
	First interim (paid 26 June 2015)	2.65p	2.60p		3,516	3,450
	Second interim (paid 25 September 2015)	2.675p	2.625p		3,559	3,483
	Third interim (paid 18 December 2015)	2.675p	2.625p		3,559	3,483
		10.65p	10.45p		14,150	13,866
	We also set out below the total dividends paid and proposed in respect of the financial year, which is the basis on which the requirements of section 1159 of the Corporation Tax Act 2010 are considered. The revenue available for distribution out of current year profits by way of dividend for the year is £13,913,000 (2014 - £13,940,000).
		2015		2014	2015 £'000	2014 £'000
	Dividends paid and payable in respect of the year:
	First interim (paid 26 June 2015)	2.65p		2.60p	3,516	3,450
	Second interim (paid 25 September 2015)	2.675p		2.625p	3,559	3,483
	Third interim (paid 18 December 2015)	2.675p		2.625p	3,559	3,483
	Current year's proposed final dividend (payable 5 April 2016)	2.70p		2.65p	3,595	3,516
		10.70p		10.50p	14,229	13,932
	If approved the final dividend of 10.70p will be paid on 5 April 2016 to all shareholders on the register at the close of business on 4 March 2016. The ex-dividend date is 3 March 2016. The Company's Registrar offers a Dividend Reinvestment Plan and the final date for the receipt of elections for reinvestment of this dividend is 11 March 2016.
5.	The fair value of the 8% Debenture Stock 2022 at 31 December 2015 was £103.6m (2014 - £105.9m).
6.	During the year, 485,000 (2014 - Nil) shares were issued at a premium to net asset value raising proceeds of £1,298,000 (2014 - Nil). At 31 December 2015 the Company had authority to buy back 19,888,123 ordinary shares and to allot 12,782,592 ordinary shares without application of pre-emption rights in accordance with the authorities granted at the AGM in April 2015. No shares were bought back during the year.
7.	The financial information set out above does not constitute the Company's statutory accounts for the year ended 31 December 2015. The financial information for 2014 is derived from the statutory accounts for 2014 which have been delivered to the Registrar of Companies. The Auditors have reported on the 2014 accounts, their report was unqualified and did not contain a statement under section 495 to 497 of the Companies Act 2006. The statutory accounts for 2015 are unaudited and will be finalised on the basis of the financial information presented in this preliminary announcement and will be delivered to the Registrar of Companies following the Company's Annual General Meeting.
8.	The Report and Accounts will be available on the SAINTS page of the Managers' website www.saints-it.com on or around 1 March 2016.‡

‡    Neither the contents of the Managers' website nor the contents of any website accessible from hyperlinks on the Managers' website (or any other website) is incorporated into, or forms part of, this announcement.

None of the views expressed in this document should be construed as advice to buy or sell a particular investment.

- ends -

 

END

 

 

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